By Bart Book, SIOR

Published in Heartland Real Estate Business – City Highlight, March 2007

Central Indiana continues to be one of the nation’s leading distribution hubs. Last year, occupancy grew an impressive 5.7 million square feet, the third consecutive year of more than 5 million square feet of growth. To put this in perspective, the industrial sector posted growth of more than 17.7 million square feet from 2004 to 2006, nearly two-and-a-half times the 7.1 million square feet of growth from the prior 3-year period.

This growth has been triggered by Indianapolis’ emergence as a major regional and national distribution center. Modern bulk, traditional bulk and medium distribution accounted for nearly all (16.7 million square feet) of the occupancy growth during the last 3 years. Developers and companies are attracted by the area’s central location and excellent infrastructure. In fact, four interstate highways converge in the area, more than any other metro area in the nation, allowing goods to be delivered to three-fourths of the U.S. population within a 1-day truck drive.

Manufacturing also continues as a bright spot. Indianapolis is witnessing a significant rebound as domestic and foreign investment pours into the area. According to the Indiana Manufacturer’s Association, 48,000 new jobs have been created in Indiana since 2003. During that same time frame, manufacturing has rebounded with 1 million square feet of occupancy growth.

Significant manufacturing growth is forthcoming as well, with the announcement of a new Honda assembly plant on 1,700 acres in Greenwood, Indiana, Toyota’s new Camry line in its expanded plant in Lafayette, Indiana, and Nestle’s construction of an 880,000-square-foot facility on 190 acres in Anderson, Indiana. Rolls Royce, Cummins and BP have also announced plans to upgrade or expand existing facilities in the market as well. Logistics remain the engine that fuels central Indiana’s industrial sector. The area’s location, infrastructure and the state’s commitment to attract companies with incentives have propelled significant developments.

Last year, developers built 5.5 million square feet of modern bulk, primarily in longstanding strongholds. Much of this construction occurred in the southwest submarket, as Chicago-based The Alter Group delivered its first building in Indianapolis, a 441,000-square-foot speculative modern bulk facility in Plainfield. Duke Realty Corporation, Pannatoni Development Company, Opus North and First Industrial Realty Trust also brought speculative modern bulk facilities on line in Plainfield in 2006.

But as old stand-bys such as Plainfield, Lebanon and Brownsburg, Indiana, continue to be built out, developers are branching out to new locations. Just one interchange west of Plainfield, locally based Lauth Property Group and The Alter Group have announced plans for 550-acre and 353-acre developments, respectively, in Monrovia.

Further north in Whitestown, Duke Realty Corp./Browning Investments’ AllPoints at Anson project is nearing completion of its first 631,000-square-foot speculative modern bulk building. Also in this area, Valenti Held is beginning work on its 400-acre Perry Industrial Park and Denison Property Group/Opus North are teaming up on the 158-acre Whitestown Business Center. Attracted by lower land prices than in Plainfield, these projects may bring up to 15 million square feet of new product, mainly modern bulk, when completed. This is not a case of overzealous development — while vacancy for modern bulk climbed almost 3.5 percent last year to end the year at 10.9 percent, the market absorbed nearly 3.6 million square feet of modern bulk space. That continued a trend of positive absorption of more than 2.5 million square feet of modern bulk space for 7 years running. Developers have done a good job in managing speculative development, which should lower vacancy rates for modern bulk in the year ahead.

Central Indiana’s growth has steadily lowered the overall industrial vacancy rate from its peak of 9.1 percent in 2002 to its year-end 2006 level of 6.5 percent. Combine this growth with the prudence shown by developers, which have averaged 5 million square feet of new product in each of the past 3 years, and the industrial sector will remain healthy. Looking ahead, expect manufacturing and logistics to lead the industrial sector in continued growth. This is fueled by the area’s importance as a major air cargo hub, housing FedEx’s second-largest facility, and ongoing construction at the airport to further accommodate freight volume. Ports are being upgraded, and a planned intermodal hub in Plainfield could move railroad freight directly through Indianapolis instead of Chicago. Indiana’s leadership is emerging in the nascent biofuels industry as well. As energy prices increase, the state has gone from one ethanol plant to 17 plants, as well as four new biodiesel plants, in the past couple years. Look for suppliers to move near these plants, triggering more development in the coming years.

Bart Book is a principal, senior vice president and manager of the industrial division in Colliers Turley Martin Tucker’s regional office in Indianapolis.